Power bourses to launch term-ahead contracts today

Written by Sanjay Jog | Mumbai | Updated: Sep 16 2009, 05:01am hrs
There is good news for power-starved utilities across the country as the Indian Energy Exchange (IEX) and Power Exchange India (PXI) will launch term-ahead market contracts from Tuesday. IEX, whose daily turnover is 16,000 megawatthours (mwh) in day-ahead market, says now any buyer or seller can trade for any hour of the day, any day of the next week and any week of the next month. On the other hand, PXI, which clocks a daily turnover of 1,500 to 2,500 mwh, will launch weekly products on month-ahead basis (trading one month in advance with a delivery period of one week). These are firm contracts for physical delivery. Both these exchanges had received approval from the Central Electricity Regulatory Commission on August 31 to launch term-ahead contracts.

IEX managing director and CEO Jayant Deo told FE, "The exchange will offer day-ahead contingency contracts (any of the 24 hours of next day), daily contracts (for next 7 days on rolling basis), intra-day contracts (same day) and weekly contracts (trading one month in advance with a delivery period of one week). The exchange will carry out trading in such contracts through closed auction session only. Closed auction means that the members can not see the other bids/offers submitted. Both buyers and sellers enter anonymous orders for contracts.

Members can input several orders each with limit price and quantity. Orders from buyers and sellers are processed and matched. Members are allowed to enter, modify or delete bids during call period but not during auction freeze state. At the end of call period, such bids/offers are aggregated as demand and/or supply curve and intersection of two will determine uniform clearing price referred as equilibrium price. All orders in the contract having prices, better than the equilibrium price are executed and the ones that have a price equal to the equilibrium price are executed according to a first in first out (FIFO) algorithm.

IEX sources said all contracts will be available for all five regionsnorthern, eastern, western, southern and north eastern. Sellers will quote bids for selling at their respective state periphery.

According to PXI CEO Rupa Devi Singh, the exchange will manage the counter-party risk on both sides of the trade thereby mitigating the credit risk. The transactions in these products are therefore completely secure, assuring certainty of delivery for the buyers and certainty of daily payments for the sellers.

The weekly products provide market participants with opportunities to secure electricity in an informed environment in a planned manner on weeks-ahead basis. These products are delivery-based and have been designed in-line with the existing bilateral trade mechanism while ensuring transparency and certainty of trade. The day-ahead contingency products have been developed in response to the desired needs of electricity buyers and sellers to provide them an option to trade those bids, that could not be matched during the day-ahead spot market sessions early in the day. In addition to allowing revision of bids, using day-ahead contingency buyers and sellers can put fresh bids.

PXI sources said these products are designed in-line with the existing bilateral commercial process for better acceptability The "differential pricing mechanism" devised does not force members to accept the uniform pricing as an outcome of the system but provides them with a flexibility in pricing depending on their organisation's preference The price movements are unaffected by panicked and high volume buyers and sellers Buyers can submit fixed bids and up to four optional bids, thus multiplying chances of getting cleared. More than one auction session will be held on each trading day thereby increasing chances of dispatch or procurement of power. The trading engine, matching system, risk management and other related infrastructure for these products are developed completely in-house.